We all know we should have an estate plan, but it’s amazing how easy it is to put off. We are loath to imagine, talk about and plan for a time when we are no longer living. It can feel morbid and uncomfortable to think about – not to mention overwhelming to go through the process of understanding all the options and deciding which are best for you.
Estate planning also requires talking about money, which is another uncomfortable topic for many of us, regardless of our financial net worth. This explains why a recent study by Caring.com confirmed that only 42% of US adults have estate plans. When survey respondents were asked why they don’t have an estate plan, 47% explained, “I just haven’t gotten around to it”. Sound familiar? The good news is that the percentage of those with estate plans increases with age, as you’d expect.
But perhaps the most startling statistic about estate plans is that the majority of them are considered failures. The statistics vary from study to study – and I’m not sure how it’s even possible to measure someone’s satisfaction with their estate plans when they’re dead. But that aside, these – er -post mortem studies agree that somewhere between 70 and 80% of estate plans fail.
Failure, in this case, is defined as not reflecting the intent of the person they are written for.
Before we get into reasons for why they fail and how to prevent that from happening with yours, it’s useful to remember what estate plans are and what they’re supposed to do. Estate plans are legal documents designed to clarify details like:
- which financial assets go to whom at what age
- how financial assets and other possessions will be divided up
- who will care for your children if they are under 18
Estate plans are also designed to shield assets from taxation and prevent assets from being held up in probate court, which can keep assets for being distributed for 6 or more months. There are other things that are specified in estate plans, like who you want making health care decisions for you and how much medical intervention you want if you require life support. Those details are important, but they’re not the pieces that are most problematic.
The two primary reasons estate plans fail are that
- the plans are either never signed or the plan is not carried out by the client
- the heirs were not adequately prepared for the assets.
The blame for failure in the first reason is shared between the attorney and the client. The attorney and client together should be driving the approval process. And clients need to speak up if they don’t understand the documents or feel the plan doesn’t fully meet their needs. If the plan truly meets your needs, you’re likely to sign it and do what’s needed to execute it. Your attorney should be following up to make sure you’ve executed the plan because it doesn’t serve anyone if you never sign off and take action on the plan they’ve prepared.
The second cause of estate planning failure (unprepared heirs) is a bit more challenging to address. I’ve got some tough love on this one. Unless they hired someone to prepare their kids for their financial future, the blame for any failure lies directly with the person the plan is written for.
The issue is that preparing heirs takes time. It’s not something that just happens in one or two conversations (although that’s a great start). The more informed beneficiaries are about their future, the better they are able to plan for it. And even better, the more you’re willing to communicate your plans with them, the more opportunities you will have to give them important life lessons and reinforce your values in the process. The good news is that if you’re reading this, you’ve got time!
You just have to be willing to talk about your plans and your money – you can decide how much detail to share. The easiest way to overcome any resistance to sharing your estate plans with beneficiaries is to remember that this is one of the best and easiest ways to discuss your values. They are baked into all decisions in your estate, so discussing it with your heirs gives you a chance to demonstrate the values that drive you.
Ideas for sharing your plans:
- Letters to children and other beneficiaries – this approach gives you time to think carefully about what you want to say and also allows you to tailor the content to each person if that’s useful
- Individual conversations – allows you to customize discussions according to age, level of interest in detail, knowledge, etc. while also creating more room for family members to ask questions they may not ask in a group
- Family meeting – gives you an efficient way to communicate but should be done in addition to more intimate conversations on the topic. Best used to inform family members about what you’re sharing your plans and how you plan to do and save the details for the individual conversations or letters.
It’s important to note that best way to prepare your beneficiaries for their financial future is to teach them throughout life rather than rely on one point in time or one conversation to do this work. But you should start or pick up wherever you are and build from there. Because nobody else will do it for you. Even more compelling however, is that these conversations can deepen your relationships with people you care about.
And since estate plans should be reviewed and refreshed every five years, you have at least one fairly regular built-in reason to sit down with those you’ve written into your plan and provide information that will prepare them for receiving what you have worked so hard to build and protect.
You care for your family members. You want to impart wisdom and solidify values.
Now is a good time to do it. Don’t delay.
PS – I write these posts with the hope that you find them useful. I also enjoy hearing your questions and feedback, including suggestions, challenges and sharing other resources. You can comment on this post by clicking on the title of this post, which will bring you to this article on the Forbes Legacy Advisors website. Add comments at the bottom of the page. Or shoot me an email by clicking here.
Great to hear, Julie. Glad this was the reminder you needed to take action!